Banking & Finance

New changes to the CBILS mean that smaller UK businesses experiencing COVID-19 related lost or deferred revenues and resulting cashflow disruptions can now access funding through the scheme, even if they meet the requirements for a standard commercial facility.

The scheme provides financial support to SMEs which are considered viable in the longer-term. The absence of upfront costs and lower initial repayments will be particularly attractive to businesses seeking urgent finance to help them through the high economic impact phase of the pandemic.

Important changes have been made to the scheme to open it up to smaller businesses who previously would not have been eligible for CBILS because they met the requirements for a standard commercial facility.  Changes have also been made to place restrictions on the security which lenders can require for lending under the scheme.

Businesses which have previously been turned down for a CBILS facility could now find that they are eligible, and businesses put off by lenders’ requirements for personal guarantees (or the extent of those guarantees) might now find the revised scheme a more attractive funding option.

 

What funding is available?

Various forms of finance are available through the scheme, including:

● term loans

● overdraft

● asset finance

● invoice finance

 

How much can I borrow and on what terms?

The key features of the scheme are:

amount: guaranteed facilities up to £5m.

repayment: repayment terms of up to three years for overdrafts and invoice finance facilities, and up to six years for term loans and invoice finance.

guarantee: lender receives a government-backed 80% guarantee against the outstanding facility (but, importantly, the SME remains 100% liable for the debt).

interest and fees: there are no guarantee fees for SMEs to access the scheme, and the UK Government covers the first 12 months of interest payments plus any lender fees such as arrangement fees or early repayment charges.  But note that if your business is in fisheries, aquaculture or agriculture you may not receive the full interest and fee payment.

security: in contrast to the terms of the scheme on its launch, CBILS now can support lending even where a lender considers there to be sufficient security.  Where sufficient security is available it is likely that the lender will take such security in support of a CBILS facility.  Lenders will not, however, take personal guarantees for lending of up to £250,000.  For facilities above £250,000, personal guarantees may still be required, at the lender’s discretion, but recoveries under these are capped at 20% of the outstanding CBILS facility balance after the proceeds of business assets have been applied.  Furthermore, a borrower’s or guarantor’s primary private residence cannot be taken as security to support a personal guarantee or as security for a CBILS facility.

All lending decisions lie with the individual lender.

 

Am I eligible?

Access to the scheme has now been opened up to smaller businesses facing cashflow difficulties who previously would not have been eligible for CBILS because they met the requirements for a standard commercial facility. You may therefore consider re-contacting your lender if you have previously been unsuccessful in securing CBILS funding for this reason.

To be eligible you must:

● be a business with a UK-based business activity and have a maximum annual turnover of £45m. Sole traders and freelancers are eligible provided their business activity is operated through a business account

● generate more than 50% of your turnover from trading activity

● have a borrowing proposal which, were it not for the coronavirus pandemic, the lender would consider viable and for which the lender believes the provision of finance will enable you to trade out of any short- to medium-term difficulty

Certain sectors, such as banks, the public sector and other organisations or trade unions are not eligible.

 

What if I could borrow on standard commercial terms?

When the CBILS was first launched if the lender could offer finance on normal commercial terms without the need of the scheme, it would do so.  Significantly, access to the scheme has now been opened up to smaller businesses who previously would not have been eligible for CBILS because they met the requirements for a standard commercial facility.

Businesses which were previously unsuccessful in securing CBILS funding on this basis may therefore consider re-contacting their lender.

These changes are to be retrospectively applied by lenders for any CBILS facilities offered since the scheme was launched on 23 March 2020. For any non-CBILS commercial facilities offered since that date, provided the borrower meets the CBILS eligibility criteria, lenders have been asked to bring these facilities onto CBILS wherever possible (for example where the lender is accredited to offer the same facility through CBILS) and changes retrospectively applied as necessary.

 

What if my business has a turnover of more than £45m?

If your annual turnover is between £45million and £500million a new Coronavirus Large Business Interruption Loan Scheme (CLBILS) is being established to provide a government guarantee of 80% to enable lenders to make loans of up to £25 million at commercial rates of interest.  Further details of the scheme will be announced in April 2020.

 

How do I access this funding?

CBILS is available through the British Business Bank’s 40+ accredited lenders listed here.  If one lender turns you down you can still approach other accredited lenders.

You will need evidence that were it not for COVID-19 your business would be considered viable by the lender.

 

What supporting documents will I need?

You will need to produce evidence to show that you can afford to repay the loan. This is likely to include:

● management accounts

● cash flow forecast

● business plan

● historic accounts

● details of assets

The evidence requirements will vary from lender to lender, and the availability of a CBILS loan will not automatically be ruled out if you do not have all of the items above.  In particular, applications for smaller facilities may not require the same level of documentation.

Funding available through the scheme is in addition to any other COVID-19 related Government support your business may be receiving.

The scheme could provide a lifeline to otherwise viable businesses highly affected by COVID-19.  Eligible businesses are encouraged to make early contact with an accredited lender to discuss the availability of finance under the scheme.

Lindsay Lee